Have you Heard the Latest Income Tax Myth?
It’s tax season again and what a confusing time for Canadians who have not been keeping up with all the new tax rules and changes. Filing annual personal income taxes is trying enough, but combine that with the software choices and changes, well, it does not necessarily make for a pleasant experience. Among the many things there are to know when it comes time to file, there are also a few things Canadians need to not know. With so many common tax myths out there, it’s hard to know what is what. Here is a brief list of tax myths that will hopefully sort out your tax questions.
Many people think they should be receiving a tax refund every year. This is completely FALSE. Getting a tax refund means that you’ve overpaid in your employment tax deductions somewhere. A refund can also result in a yearlong RRSP contribution or from childcare expenses. In essence, getting a refund means you’ve been providing the government use of your money for the past year, interest free.
A common belief is that once you get your refund, you are in the clear. This is definitely a FALSE myth. The Canada Revenue Agency will initially assess your return without the supporting documents. However, they do have a right to ask for them in the future, if they suspect errors such as unreported income or miscalculations, receipts or support.
Too many Canadians believe that if they make a mistake on their tax returns, the Canada Revenue Agency will correct it for them, in their favour. This is absolutely FALSE. The CRA will correct mathematical errors that you may have missed, but if you miss any deductions or credits or forget to transfer things to your advantage, the CRA is not obligated to point them out or correct them.
Another common myth among Canadians is that if they make a mistake on their return, it’s best to just file a new one. Another resoundingly FALSE myth. If you’ve made a mistake on your return, it’s best to inform CRA by using a T1 Adjustment form (T1-ADJ). You can also add a handwritten explanation and include it with the form. With the tax deadline mere days away, considering these myths may help you prepare a more accurate tax return and reduce any money you may owe. Filing on time is the single best way to avoid paying more than necessary, so what are you waiting for Canada? Get filing.
A Few Tax Schemes to be Aware Of
As the tax deadline nears, the Internal Revenue Service is warning people to be aware of fraudulent tax preparers, offers that seem to good to be true and hidden offshore bank accounts. Taxpayers should be aware of anyone offering advice and services that may see them fall prey to tax schemes that could result in fines or even jail time. Among the news scams to watch out for this year are preparers who offer refunds that don’t even exits.
Fraudulent preparers will file false or misleading returns by lying about the amount of your charitable donations, attempt to claim a credit for things such as gas that was for personal use, or they will file a phoney salary amount, all in an attempt to skim more money off a client if they’re being paid by a percentage of the return. They will often try to lure clients to by offering unattainable refunds or attempt to charge more than they should for their services
It’s easy enough for people to impersonate the IRS to obtain your personal information. These impersonators then use your information to gain your identity, access your bank accounts, run up credit card debt or even apply for loans. Phishing for personal information via email is a widely spread scam that still snags many people, so it’s essential that you are careful before replying to that e-mail from the IRS notifying you of the thousand dollar refund you’re eligible for this year. These scams can also come in the form of phone calls, faxes or even tweets.
It’s simple for an accountant or tax preparer to take advantage of you, especially if you’re unfamiliar with the tax code or paperwork involved with filing a return. There have even been instances where preparers have convinced their clients to argue about the amount of their tax return with the IRS in an attempt to bring more money into their agency. They have also been known to suggest their clients give themselves a pay cut in an attempt to lower the amount of taxes owed. Some taxpayers are agreeing and are filing phoney wage-related information, which can easily result in a $5,000 fine.
Another scheme to be aware of is your tax preparer suggesting you hide your business under another entity. These are often disguised through a third-party used to request an employer identification number, which means the business can then be used to underreport income, financial crimes, money laundering and fake deductions.
Canadians Still at Parity
This past April 24 weekend, the Canadian dollar slid as inflation and retail sales came in weaker than expected. Economists were surprised as currencies usually strengthen when interest rates increase to attract capital flows. However, the Canadian dollar managed to climb its way back up just above parity with our greenback neighbour, which was lifted due to the weaker US dollar.
The Canadian loonie fought back from a low $1.0066 to the U.S. dollar, or 99.34 U.S. as the price of oil climbed above $85 a barrel following positive U.S. economic data. The currency ended the session at C$0.9991 to the U.S. dollar, or $1.0009, up from Thursday’s finish at exactly C$1 to the U.S. dollar. It was up 1.4 percent for the week.
The central bank showed the annual core inflation rate was lower in March at 1.7 percent from 2.1 percent in February. Much of the cause in the push in CPI in February was temporary and due mostly to the Vancouver Olympics. This lower market reading means the bank may not have to raise the interest rates as aggressively as anticipated. Also weighing in on the currency outcome was data supporting the numbers that retail sales rose less than expected in February. Even though retail sales increased for the third consecutive month, economists were expecting a gain of 0.8 percent, up from the 0.5 percent in overall sales.
Now that the Canadian economy is back in check, the banks feel it may be time to begin removing some of the stimulus that helped get Canada out of the recession. The bank is no longer promising to keep its key rate at the record low of 0.25 percent. The next rate announcement is June 1.
The North American equity markets ended on a higher note with US stocks advancing due to increased energy and healthcare issues. Canadian bond yields had a large jump this week as well due to the anticipated bank interest increase that may come sooner and steeper than expected. The two-year Canadian Bond was up 7 cents to $99.13, yielding 1.984 percent, while the ten-year bond rose by 23 cents to $100.38, yielding 3.701 percent. Canadian bonds continued to outperform the US bonds with the two-year yield 91 basis points above its US counterpart.
With all the increase in interest rates also comes an increase in investment profits. If the central bank does indeed raise rates as expected, it may be a good idea to lock yourself in to a loan now if you are in need of one. If traditional banks are not an option for you due to bad credit, there are many private lending institutions that offer bad debt loans. They can be found on-line
The Effects of Stress in the Workplace
The latest in job related illnesses finds, not surprisingly, that stress can be the cause of many health conditions. A recently concluded 12-year British study found the most stressed workers were white-collar workers between the ages of 35-55. They also found this category of workers have jobs with high pressure and little control, as well as bad bosses and unsupportive colleagues.
Obviously stress is a part of real life and it certainly can exist in the workplace. Stress is not entirely bad however. It has been known to motivate our performance as well as provide bursts of energy and has even been known to provide an enhanced memory.
Excessive stress is the bad stress. Excessive, long-term stress will not only impede our job performance, it also has a detrimental affect on our personal morale and can make people very sick.
The study showed that chronically stressed employees were 68% more likely to develop a heart-related disease, suffering from a non-fatal heart attack, developing angina or dying from heart disease. This study was important because people have always been sceptical as to whether work-place stress really affected a person biologically. They discovered that both biological and behavioural changes such as overeating, eating unhealthy, smoking and not exercising all related to heart issues.
These same workers also had a higher than normal level of cortisol in their blood, which has been related to such health problems as: increased abdominal fat, lower immunity, high blood pressure, impaired cognitive performance, blood sugar imbalances, suppressed thyroids and even decreased bone density and muscle tissue.
The American Psychological Association has recently found that one-third of American workers are living with extreme stress. Seventy-four percent of these people say the source of their extreme stress is work related. That is up from 59% from the year before. This high percentage may help clarify some of the bad behaviour that occurs in various work environments when we hear of disgruntled bosses or employees. Employees claim that negative interpersonal relationships with their co-workers, albeit with passive-aggressive colleagues or bad bosses, have an enormous impact on their stress and anxiety levels at work.
A Canadian study found that work place bullying is a large problem with 37% of the working population saying this has happened to them in their place of employment. They also found that work place bullying is more harmful to employees than sexual harassment. Perhaps a career change may provide a solution if you are one of these overly stressed workers. If you are in this category you may want to consider additional health care.
An Even Budget from a Variable Income
If you are one of the many people these days with a variable income, either because you are on periodic shutdowns, temporary layoffs, or cutbacks in working hours, the irregular pay cheque can really throw you for a loop. Taking irregular income and evening it out takes resolve, but it can be done. Here are some tips to help you get through the lean months, not overspend when you are flush, and get cash set aside for when you really need it.
First, go back through three to six months’ worth of your finances. Figure out what bills you owe, and when. For example, do your utility bills only come every second month? If they come due during one of those layoffs, that can make for a rough month-and possibly an unpaid bill-if you haven’t set aside money for them. You want to use the past several months’ financial history to tell you how much you need every month to make ends meet, and avoid unexpected surprises like the electric bill.
Next, open a savings account, if you don’t already have one. In those higher earnings months, set aside the extra money earned to bail yourself out during layoffs, or shorter working hours-whenever your pay cheque might be short. It’s always tempting to treat yourself to something special when you have a few extra bucks in your pocket. But you’ll feel a whole lot better if you don’t, and then, when the bills come home, you have money in your pocket to pay for them.
Here’s the hardest part. Set money aside from your higher paycheques until you have one month’s worth of bills and living expenses in your savings account. This may not happen overnight. It can take six months or even longer, to get this kind of cash together. But, if you can set aside a month’s worth of expenses into your savings account, then you can start living from the savings, and not pay cheque to pay cheque.
Since you know your monthly costs, you transfer only that amount into your chequing account. In the months where you make higher pay, that extra money stays in your savings account. In the lower pay months, you use those savings to ensure your bills are paid on time, and in full.
Setting up this kind of system takes time, and discipline. But it’s worth the rewards of not having to fear a layoff, shorter hours, or forced vacations.
Indebted Canadians…There is Help
More than 116, 300 Canadians filed for bankruptcy in 2009, a 28% increase from 2008. Economists expect that number to hover as long as personal debt loads and unemployment rates remain high. Credit bureaus say the spikes are coming from Canadian’s debt to income ratios as many Canadians sought loan extensions during the historically low interest rates the banks have been offering over the past year.
Several Canadian financial institutions are offering programs to help guide people through the tough times when it comes to debt overload. They say that consumers should monitor their credit profiles to avoid becoming financially overextended and that there are steps that Canadians can take before resorting to bankruptcy.
To keep financial matters in check, it is advised that consumers should keep their housing costs around 28% of their income and overall debt payments around 35%. If consumers are utilizing 30% of their credit limit, it may be a warning sign. If consumers are using 50% of their limit, that is a red flag.
Filing for personal bankruptcy may provide financial relief to consumes who have taken on too much debt, but a bankruptcy will remain on your credit file for many years and can severely impair your ability to borrow in the future. Canadian financial institutions have seen over 30,000 people come to seek financial and debt-paying advice through their programs. Many people are not even aware that most banks offer such programs.
It’s hopeful that Canadians will see better times in the next year as consumer confidence has risen since November. Financial planners recommend consumers have a six-month supply of money saved for emergencies. Only a few years ago these same planners were recommending three-months worth of emergency funds were saved. Savvy planners are able to prepare for unforeseen life events. An insurance policy for $50 a month can easily save you $100,000 in unforeseen medical emergency debt.
If you find yourself on the brink of bankruptcy, reconsider filing. Instead you may want to try altering your budget, using your savings to pay down loans, calling creditors to rework payments, selling a few assets to put towards your debt or consolidating debt to make the monthly payments easier. If you already have bad credit and do not feel traditional banks are an option for consolidating your debt, there are many private financial institutions that specialize in bad credit loans that may be able to help with debt consolidate to help you get your bad credit under control.
Budgets to Change Your Life
First things first. Give yourself a budget-attitude shake. A budget is neither a starvation diet nor a binge approach to money management. It’s a month-by-month strategic plan to care for yourself, your family, and your future. Once you get good at it, your budget can become longer term-some people actually have 5-, 10-, 15-year plans, and more-and peace of mind about their future. You can too.
What a budget can do
- A budget can be a real wake-up call about your finances.
- A budget can tell you what you can really afford, based on how much money you actually make-without lines of credit, plastic, in-store accounts, or other “false” income extenders.
- A budget can help you prepare for unexpected surprises-a furnace breakdown in February, or dental emergency in July.
- Eventually, a budget can even help you plan big purchases-a home, vacation, children’s education, and your retirement.
What a budget cannot do
- A budget cannot change how much money you really make.
And if you’ve never actually compared what you make to what you spend, the reality may be harsh. That 20×30 back deck you were planning to build this spring? It might be more realistic as an 8×12-get the drift?
How to begin
Start with pen and paper. No fancy accounting books or computer programs needed.
Next step
Make two columns. Call one “Fixed costs”, the other, “Variable costs”. Variable costs are ones you can change (as in, spend less)-groceries, liquor, and entertainment. Fixed costs you usually have no control over-like rent and car payments. (Even those costs might be adjustable-don’t dismiss moving for cheaper rent or selling a vehicle.) Don’t count fixed costs if they aren’t. Seriously, how many phones do you need? Basic cable is much cheaper than premium, and beer is not a mandatory food group.
Under one of the two columns, write everything you spend money on each month-groceries, gas, car payments, credit cards, mortgage/rent, phones, television/cable. Add it up. Stay calm. Now write down your income sources, and tally them. Subtract Fixed/Variable costs from your income. Seeing red?
Sharpen your pencil
This is budgeting-choosing how you’ll spend your money. The quickest way to save big bucks is with entertainment, liquor, and groceries. Control those costs by deciding how much you can actually afford. Put those new amounts into your column. Re-tally. Seeing more black?
Tips to control spending
Sometimes you’re so cash strapped, you have to eliminate things-find freebies instead-the library, instead of the movies, the park instead of the mall.
Always buy with cash
From now on, always buy with cash. Melt your credit and debit cards, and close all lines of credit. When you get paid, go to the bank and withdraw the money allotted to variables for that week, and put it into labeled envelopes. When you take out cash to buy those things, put the receipts into the envelope. This way you see where your money goes, and can make a really conscious choice next month about whether you want to spend your hard-earned paycheque that way.
Surprise cash pockets
Don’t squander surprise cash pockets. Every June, after Tax Freedom Day, your paycheque actually jumps a bit-ever notice? From now on, that extra jump is going to be put towards debts, not frittered away. Your income tax return-usually blow it? No more. Pay down debts, highest interest first.
Re-budget and fine tune
It takes time to get budgeting right. But a budget can help you feel like you’re finally in the driver’s seat of your life.
Canadians Struggle to Afford Their Homes
The Conference Board of Canada has recently found that the lack of affordable housing has left one-fifth of Canadians struggling to pay for their homes. They fear this number could increase as the mortgage rates rise from their recent lows. This means that currently, 20% of Canadians are affording their homes by cutting other costs that could personally affect them. A home is considered unaffordable if the costs exceed 30% of one’s pre-tax income.
The current Canadian mortgage rate of 5.25% is being raised to 5.85%, up six-tenths of a percent. This move is being followed through by five of Canada’s largest banks and will affect all five-year mortgages. The report from the Conference Board of Canada comes just as CIBC and National Bank announce they too, were raising their mortgage lending rates by more than half of a percent, ahead of the Bank of Canada’s anticipated rate hike that is expected this summer. This likely spike in bank rates will end the historically low mortgage rates that have brought us into 2010.
The Conference Board of Canada claims the high debt loads that are being taken on by consumers are an attempt to get in before the mortgage hikes take effect. These same homebuyers are considered responsible for the housing market rebound that Canada has seen up until now. However, there is a fear that anxious consumers will continue to overextend themselves in an attempt to get into the housing market meanwhile, the level of Canadian incomes has remained relatively consistent, not providing enough of an increase to match the housing prices.
Much of the problem lies with the buyers who didn’t put a lot down, which means their mortgage payments are quite high. Combine this with an increased mortgage rate and the outcome will be homeowners with a serious affordability problem. If the current prime rate of 2.25% rises by 2.5 percentage points, which is an average cycle increase, a variable mortgage rate could cost a homeowner about 30% more per month.
A large segment of the housing population’s demands have not been met due to the heightened fees of construction, resulting in developers being focused on building homes aimed at people in the higher tax bracket. There is also a gap in rental availabilities as developers are building condos instead of apartments, leaving rental properties sporadic and expensive.
There is an element of concern that there could be more defaults on loans or more home foreclosures due to interest rate increases, but it is felt that most people will find ways to cut expenses to pay off their mortgages, which may pose a risk to Canada’s recovering economy. If you feel that you are in a position of needing to tend to a bad credit rating or financially prepare for the upcoming rate hikes, a private bad credit loan may be an affordable answer.
Learn to Save Your Money-and Teach Your Kids Too!
Sometimes parents are nervous about letting their kids in on the financial picture-but it might be one of the best decisions you make for you and your family. Kids already always know what’s going on, anyway, so you might as well ‘fess up in the money department. And you might be surprised what your kids come up with, to help the family out.
Save a little bit each month
One thing you and your kids can both start is to commit to saving at least a small amount of money each month. Do you give your kids an allowance? Then, you could start there. Depending on how old your kids are, you can have them divvy up their allowance into jars-mad money, saving towards a special purchase, savings to go into the bank, and so on-or if they’re old enough, actually tracking their spending and receipts in a log of some kind. Whatever you choose to do, long-term savings that your kids don’t touch should be part of the plan. A general guide is 10%.
Save together for something special
If you’re planning a family trip, save as a family. Have a jar or envelope where anyone can make a contribution at any time. When you or your kids contribute, mark your contribution on the envelope. Whoever contributes the most (make sure it’s proportionate now!) gets extra say on some outing, or gets to choose where you eat, or something else you can do as a family.
Keep it upfront to keep it going
Another trick is to keep the logbook, or the jars, in plain sight where the kids can check on them whenever they want. Don’t make money a dark secret to be squirreled away, hidden, or something to be ashamed of. Now that doesn’t mean they need to show your family management plan to the neighbors! But make money management as natural as making dinner, or doing homework-something you can talk about, discuss, and plan together. Then, take a page from your kids savings plan. Do the same thing for yourself.
Now you try
Write down what you spend each month, and on what. Reduce every expense that you can-like groceries, mad money, other discretionary spending-by 10 per cent. Sock that money away, just like your kids are doing. You might even have a competition with your kids. See who can find the best way to save. Have a tip jar where the loser has to put in $1.00 and the winner gets to take it out every week, or every month, whatever your finances can afford, and do whatever they want with the winnings. If you make saving money fun, your kids will be glad to do it. They’ll learn a really valuable lesson, too. And so will you.
Retiring in the Red
If you’re of the younger generation but are still around the age where the thought of starting to save those retirement funds are stashed away in the back of your mind, you may be surprised to know many retirees are retiring in the red. Years spent enjoying well-earned lavish vacations, purchasing expensive items (bags and shoes, ladies – cars and watches, men), drinking fine wines and indulging in restaurants are eating away at potential retirement money.
Living outside ones means seems common practice for many people. With so much rotating credit available, many of us simply are not saving for the golden years. The recent recession had people reciting ‘Freedom 85′, which unfortunately, probably has a ring of truth to it. While many of us know retirement is inevitable, falling somewhere between death and taxes, the mental concept to just work longer seems to be common one. With people living longer and generally being healthier, it can make sense to consider this an option.
However, we have to admit how unpredictable life can be. An unforeseen health issue or accident can instantly eliminate any of those longer working intentions. Suddenly even Freedom 85 is unobtainable. An unexpected health issue forces many people into early retirement. Even if you’re lucky enough to have a generous pension, the payout will be reduced because of early retirement, which will most likely end up being less than your previously earned salary.
According to Statistics Canada, more and more Canadians continue to grow their debt loads. The Bank of Canada says the average person has accumulated $36,000 in bills. They blame this on credit card addicted young people, but older Canadians are still piling up debt as well. The Credit Counselling Society noted 14% of their clients are over 56, saying this category of clients has almost doubled in the past ten years. If you’re about to start saving for retirement, here are a few tips:
The first thing you need to do is reduce risk. Real estate and stocks don’t necessarily provide the benefits they once did due to surging markets. People need to realize conditions change and markets around the world have been falling. Scaling back is also a key to retirement success. If you’re not the type to live outside your means, then living on 50% to 70% of your pre-retirement income won’t be a problem.
There are things you can do now to help yourself later. If you own debt and traditional banks are no longer an option, consider applying for a secured private loan. This may help put your finances in order so saving for retirement won’t be such a red-hot issue.